EEA Life Settlements Fund PCC Limited

Transcription

1 EEA Life Settlements Fund PCC Limited Some of your questions answered about EEA Life Settlements Fund PCC Limited Last updated: 16 December 2015 This document is meant to help you but not to replace the primary sources of information, including in particular the Information Memorandum and Supplements. You are urged to read those documents and to consult your professional adviser before making any decision in respect of the Fund. 1

2 Important Information: This material is being issued by EEA Fund Management (Guernsey) Limited (the "Manager") (which is licensed by the Guernsey Financial Services Commission to carry on the restricted activities of promotion, subscription, dealing, management, advising and administration in connection with Category 1 Collective Investment Schemes and Category 2 General Securities and Derivatives under The Protection of Investors (Bailiwick of Guernsey) Law 1987 as amended), and has been approved for issue in the UK by EEA Fund Management Limited (which is authorised and regulated by the Financial Conduct Authority (the FCA ). EEA Life Settlements Fund PCC Limited (the Fund ) is an unregulated collective investment scheme as contemplated by the Financial Services and Markets Act 2000 and, accordingly, its promotion in the UK is restricted by law. It may be promoted by a UK authorised person in accordance with Section 238 of the UK Financial Services and Markets Act 2000 Act and/or the FCA Rules. Any person who is not an authorised person may not distribute it to any other person. This document may not be given to, or relied or acted upon by, any other person. As at the date of this document, the Fund has not been approved, notified or registered in accordance with Article 42 of the EU Alternative Investment Fund Managers Directive (2011/61/EU) for marketing to professional investors in any member state of the European Economic Area. Such approval, notification or registration will not be made or sought in the future since the Fund is closed to further subscriptions and will not, therefore, be marketed to professional investors in the European Economic Area. The Fund is closed to further subscriptions and neither this document nor the Fund s Information Memorandum and Supplements (which, amongst other things, set out the risk factors associated with an investment in the Fund) constitute a direct or indirect offering or placement of shares or any other opportunity to invest in the Fund. Nothing contained in this note is to be construed as providing or offering investment, legal, accounting, tax or other advice and nothing should be relied on as such. The value of investments may go down as well as up and may be affected by changes in rates of exchange. Past performance should not be taken as an indication or guarantee of future performance and no representation or warranty, express or implied, is made regarding performance. Investments in the Fund do not provide capital guarantees like a deposit account and are not readily accessible. The rules on taxation can change and/or the tax treatment of the Fund could be challenged. Whilst all reasonable efforts have been made to ensure this document is accurate and up to date, no representations or warranties, either express or implied, are given as to the reliability, accuracy or completeness of the information contained in this note. Any opinions expressed are judgments at the time of writing and are subject to change without notice. To the extent permitted by law or regulation, no liability is accepted for any damage or loss, including without limitation loss of profit whether direct, indirect or consequential, in respect of the use of this material. 2

3 Introduction This document is designed to answer some of your questions and help you understand the latest news relating to the Fund. The guide should be read in conjunction with the Fund s Information Memorandum, Supplements and Articles of Incorporation. You should speak to your professional adviser before taking any action. Copies of the Information Memorandum, Supplements and Articles of Incorporation, together with the Fund s monthly Fact Sheets, quarterly Portfolio Statistics (which indicates the latest update on performance and maturity projections), Maturity Schedules and other Fund updates are available online at Shareholder Questions and Answers Would you provide further information regarding the recently-announced sale of policies by the Fund? The Manager announced on 4 September 2015 that the Fund had entered into a binding conditional agreement to sell 188 policies to an unconnected third party buyer (the Sale ). The Sale price for this portfolio represents a premium to the value (as calculated by the Fund s independent valuation agent, Maple Life Analytics, LLC, ( Maple Life )) at which those policies were held by the Fund at the time of the binding conditional agreement being signed. Note that the valuation of the policies takes into account the premium payment costs associated with servicing that portfolio of policies (in which each policy had an estimated LE of at least 4 years and, in many cases, longer) and does not assume that the policies mature at LE but are based on Maple Life s historic mortality experience. Upon completion of the transaction, the Fund will have sold all policies where the remaining life expectancy ( LE ) at the time that the policies were offered for sale exceeded four years. The Sale should also significantly reduce the risk of policies held by the Fund expiring without value or otherwise realising a loss to the Fund at maturity. The Fund s board of directors (the Board ) has confirmed that it expects the level of Available Cash in the Fund (assuming that cash required to pay two years premium payments is retained by the Fund or its subsidiaries) to increase by approximately $150m upon completion of the Sale. This is due to the receipt of proceeds of approximately $130m and a decrease in projected future premium payments. Does the Fund have the right to sell policies? Yes, the Fund s investment policy, which is set out in the Information Memorandum and Supplements, provides the Fund and the Manager with the flexibility to sell policies to third parties before maturity as part of portfolio management. Will the Fund sell further policies? There is currently no intention for the Fund to sell further policies from its portfolio, although the Fund and the Manager have the discretion to do so if they believe it is in the Fund s best interests. 3

4 Can I redeem my Shares? In respect of the Run-Off Cells: Run-Off Shares cannot be redeemed. Surplus cash (if any) generated within each Run-Off Cell from the policies that mature or are sold (after prudent provision has been made to cover anticipated premiums and other necessary costs) will be distributed among shareholders in that Run-Off Cell, until proceeds from the final policy held in respect of that Run-Off Cell have been returned to Run-Off Shareholders. Run-Off Shareholders will continue to receive periodic distributions as and when cash levels permit. Please refer to the Fund s Information Memorandum and Supplements, which contain full details of this process. For further information on distributions to Run-Off Shareholders, see pages 6-7 below. For further information on the share sale process for Run-Off Shares, see pages 7-8 below. In respect of the Continuing Cells: Continuing Shares are redeemable on the last working day of each calendar quarter, subject to at least 95 days written notice of any redemption request. The first Redemption Day following the expiry of the lock-up period is 31 December 2015, and the deadline for receipt of redemption requests for that Redemption Day has now passed (it was 25 September 2015). Further details of the redemption process, and the Board s powers to restrict redemptions, are set out in the Fund s Information Memorandum and Supplements. A Redemption Request Form is available at If you have any further questions about the redemption process, please contact the Fund s administrator, International Administration Group (Guernsey) Limited (the Administrator ) by ing them at shareholderservices@iag.co.gg. Can you please provide an update to Continuing Shareholders in respect of the 31 December Redemption Day? The levels of valid redemption requests received in respect of the 31 December Redemption Day are set out in the table below. The Fund announced on 15 December 2015 that the aggregate Redemption Values of these redemption requests are expected to exceed the level of Available Cash held as at 31 December 2015 for 10 of the 13 Continuing Cells. The Board has a number of powers to restrict redemptions, but as at 15 December 2015 it is expected that the Board will exercise their powers to restrict redemptions of Shares in those 10 relevant Continuing Cells to the amount of Available Cash attributable to such Continuing Cells. Available Cash means cash held directly by the Continuing Cell after deduction for any accrued fees and expenses but, for the avoidance of doubt, excludes cash required to pay the premia on Current Underlying Investments from time to time attributable to the Continuing Cell for a one year period (or such longer period as the Board may determine from time to time, and currently two years) which will be retained by the relevant Continuing Cell or one or more subsidiaries of the Fund. If redemptions are restricted to the amount of Available Cash attributable to the Continuing Cells, this would have the effect of postponing the redemption of a proportion of each Continuing Shareholder s Shares in those Continuing Cells until the next Redemption Day (i.e. until the March 2016 Redemption Day), subject to further postponement if, on such next following Redemption Day, a Cell s outstanding redemption requests have an aggregate 4

5 Redemption Value which exceeds the Available Cash held by the Cell as at such Redemption Day. Any such deferred redemptions would, in accordance with the terms of the Fund s Articles of Incorporation, have priority over requests submitted for the March 2016 Redemption Day or any subsequent Redemption Day. Available Cash attributable to a Continuing Cell will not be reinvested into a New Fund or Other Instruments to provide exposure to policies with similar characteristics to those currently held by the Fund whilst there are redemption requests outstanding for that relevant Cell. As a result, it is estimated at 15 December 2015 that the redemption requests for each Continuing Cell will be dealt with as follows: Continuing Cell Proportion of shares in issue for which valid requests for redemption on 31 December 2015 have been received Proportion of redemption requests expected at 15 December 2015 to be redeemed on 31 December Redemption Day USD Fund Class X Cell 36.85% 84.44% USD Fund Dist Cell 33.62% 92.83% USD Fund Acc Cell 49.60% 68.17% Swedish Krona Fund Class X Cell 40.36% % Euro Fund Class X Cell 38.22% 80.02% Euro Fund Dist Cell 11.64% % Euro Fund Acc Cell 78.39% 39.78% Sterling Fund Class X Cell 40.13% 78.72% Sterling Fund Dist Cell 44.16% 71.07% Sterling Fund Acc Cell 43.79% 72.19% Meteor Senior Life Settlements 48.59% 65.87% Sterling Fund Meteor Senior Life Settlements 50.66% 60.99% Sterling Fund II WAY Life Settlements Fund Cell 3.56% % If the redemption requests are dealt with in this way, the Fund would make payments totaling approximately $79 million across all Continuing Cells. The final decision as to how redemption requests will be dealt with will be made by the Board before the 31 December 2015 Redemption Day and announced to Shareholders shortly thereafter. The number of a holder s Continuing Shares that have been redeemed (if any) and the amount of redemption proceeds that is payable will be confirmed on a contract note to be mailed by the end of January to each Continuing Shareholder who submitted a valid redemption request for the 31 December 2015 Redemption Day. Payment of redemption proceeds would be expected to be made by the end of January, subject to receipt of original paperwork. 5

6 Will any redemption charges be applied to the Continuing Cells? The Fund has the ability to apply various redemptions charges or dilution levies on redemption from various Cells in certain circumstances. However, to date the only redemption charge to be levied is in relation to the USD Fund Class X Cell, Euro Fund Class X Cell, Sterling Fund Class X Cell and Swedish Krona Fund Class X Cell (together the X Cells). In the Supplement for each X Cell it states that, to the extent that the Manager has previously charged such Cell a distribution fee of up to 5 per cent. of the amount subscribed, such distribution fee will be charged to the Net Asset Value at a rate of 1 per cent. each year (or 1/12 per cent. each month) up to a period of five years from the date of subscription or up to the date of redemption of the relevant Shares. The redemption charge on a Share will be equal to that portion (if any) of the distribution fee which has not yet been charged to the Net Asset Value and in no circumstances will be more than 5 per cent. of the original subscribed amount. This means that in respect of the 31 December 2015 Redemption Day no redemption charge will be levied on a redemption of Shares in an X Cell which were subscribed for on or before 4 January Since the last subscription for Shares in the Fund was in October 2011, in all cases the majority of any distribution fee will already have been charged to the Net Asset Value of the relevant X Cell, meaning the redemption charge attributable to a Shareholder s redemption, if any, will be less than 1%. As a Run-off Shareholder, how long will it be before I receive the final proceeds from the maturity or sale of the final policy? Since this will depend largely on the timing of policy maturities, it is impossible to say with certainty how long it will be before Run-Off Shareholders receive the final proceeds from the maturity or sale of the final policy held by the relevant Run-Off Cells. Although there is no guarantee that actual maturities will happen as projected, the Manager does publish maturity projections in the quarterly Portfolio Statistics, which are available at When will another distribution be made to Run-Off Shareholders? The Fund has announced that it will in fact be distributing in aggregate approximately $102.2 million to those persons registered as holders of Run-Off Shares as at 1 December This amount is higher than was envisaged in the Manager s announcement of 4 September 2015 due to a number of recent policy maturities. In order to effect the distribution, a relevant portion of each holder s Run-Off Shares will be redeemed on 4 December 2015 using the 30 November 2015 valuations. The distribution amount will be paid in cash as soon as practicable following the publication of the 30 November 2015 valuations and no later than 8 January The amount which will effectively be distributed on a per Run-Off Share basis is as follows: 6

7 Run-Off Cell Effective distribution per Run-Off Share USD Fund Class X Run-Off $31.54 Euro Fund Class X Run-Off Sterling Fund Class X Run-Off Sterling Fund Dist Run-Off USD Fund Dist Run-Off $19.91 Euro Fund Dist Run-Off Sterling Fund Acc Run-Off Meteor Senior Life Settlements Sterling Fund Run-Off USD Fund Class I Run-Off $26.89 Meteor Senior Life Settlements Sterling Fund II Run-Off WAY Life Settlements Fund Run-Off Euro Fund Acc Run-Off USD Fund Acc Run-Off $25.95 Swedish Krona Fund Class X Run-Off SEK Euro Fund Class Y Run-Off The exact amount that will be distributed to any particular Run-Off Shareholder, and the number of Run-Off Shares that will have been redeemed, will be confirmed on a contract note to be mailed to each Run-Off Shareholder by the end of December Can I switch my shareholding from one Cell to another Cell? Switches between Cells are not possible. Can I transfer my Shares? It is possible to transfer shares in the Fund in certain circumstances. You will need to contact the Administrator by ing them at shareholderservices@iag.co.gg or calling them on +44 (0) to discuss what is required if you wish to transfer your Shares. Can you please provide an update regarding the sales process for Run-Off Shares? On 7 August 2015, the Fund informed Run-Off Shareholders of a proposed share sale process (the Secondary Sales Process ) to be run on an arm s length basis by an independent firm, Tullett Prebon ( TPAI ), who would match certain of its clients who have indicated to TPAI that they wish to purchase Run-Off Shares with Run-Off Shareholders who indicate to TPAI that they wish to sell some or all of their Run-Off Shares. That letter invited Run-Off Shareholders to contact TPAI in order to register their interest in participating in the Secondary Sales Process. In light of the Fund s announcement of 4 September 2015, TPAI confirmed that they would be adjusting the timetable for the Secondary Sales Process, and that no Run-Off Shares would be sold as part of the Secondary Sales Process until after the intended distribution to Run-Off Shareholders has been made. Further details will be provided to Run-Off Shareholders in due course, once received from TPAI. 7

8 Run-Off Shareholders should note that none of the Fund, the Manager, EEA Fund Management Limited (the Fund s Marketing Agent) or any of their respective directors, employees, officers, affiliates and agents (each an EEA Party ) are responsible for, and/or is in any way endorsing, the Secondary Sales Process and the only involvement of any EEA Party is in relation to assisting in the creation and maintenance of the data room (including to decide upon who may access the data room) and registering successful transfers of Run- Off Shares (which will only be made in accordance with the terms and conditions referred to in the Fund s Information Memorandum and Supplements). Run-Off Shareholders should contact their independent financial adviser if in any doubt as to what action to take in relation to the Secondary Sales Process and TPAI (by ing them at eeaprocess@tullettprebon.com) if they have any questions regarding the process. Does the Fund intend to purchase policies for the Continuing Cells? Available Cash attributable to Continuing Cells that is not used to fund redemption requests and/or other expenses will be reinvested into a New Fund or Other Instruments (as defined in the Information Memorandum and Supplements) to provide exposure to policies with similar characteristics to those currently held by the Fund. No amounts have yet been reinvested. What performance is expected? As you will appreciate, it is not possible to project future returns with any certainty, although the Board will of course be monitoring the maturity experience of the portfolio and will continue to provide updates to shareholders on Fund performance and maturity projections in the quarterly Portfolio Statistics. How are policy maturities performing in comparison with earlier projections? As at 31 December 2013, the Fund held 517 policies with a net death benefit of $1,272m. The Portfolio Statistics estimated then that, based on the assumption that maturities happened at LE, policies with a total net death benefit of $419m would mature by the end of 2015 and, based on the assumption that maturities are accrued policy-by-policy proportionately over a period equal to two times the current LE associated with the policy in question, that policies with a total net death benefit of $443m would mature by the end of Since then, to the end of November 2015, there have been maturities reported with a net death benefit of $219m. The average value of these maturities ($1.58m) is below the average net death benefit of the Fund s portfolio of policies as at 31 December 2013 ($2.46m). Following the Fund s appointment of Maple Life, we are now publishing Maple Life s updated maturity projections each quarter in the Portfolio Statistics, calculated on the basis of the current LE estimates and used by Maple Life in the calculation of the NAV of the Fund s portfolio of life insurance policies. The quarterly Portfolio Statistics document now also contains Maple Life s post Sale maturity projections as at 31 August 2015, which are based on an assumed continuation of historic Fund mortality experience. 8

9 What is being done to keep costs under control? The Manager and the Board have been working hard to reduce the Fund s costs. In May 2015, the Manager confirmed that it would pay the future fees of the Administrator, thus reducing the fees paid by the Fund. The Manager has also negotiated a reduction in the fees of the Investment Adviser, which has agreed to reduce its NAV-based fee so that it no longer receives a fee based on the NAV attributable to the Fund s cash assets. Both the Manager and the Investment Adviser have also agreed to waive their entitlement to any future performance fee. The Board and the Manager will continue to monitor the Fund s costs. Some policies expired without value in 2014 and Could this happen again? Five policies, with a total death benefit of around US$8.7m, have expired since the start of 2014 due to the underlying insureds reaching the age at which their policy automatically terminates. The value of these policies had been written down over several years thus reducing the impact on the Fund s NAV. Since then, as explained above, a binding conditional agreement has been signed in respect of all policies where the remaining LE (at the time that the policies were offered for sale) exceeded four years. The Sale should significantly reduce the risk of policies held by the Fund expiring without value or otherwise realising a loss to the Fund at maturity. In September 2015, the Investment Adviser estimated that none of the policies would expire should they mature within their LE estimate and around 3% of the remaining net death benefit was represented by policies that would expire should they not mature within twotimes their LE estimate. What is the situation regarding the currency hedge? There is no obligation to reinstate the currency hedge, but the Manager will consider doing so if commercially reasonable terms can be found. It is worth mentioning that a currency hedge requires cash to be set aside to settle positions, and a counterparty would also expect collateral (more cash) to be posted. These requirements would reduce the amounts of cash available for distribution (in relation to Run-Off Shares) and reinvestment (in relation to Continuing Shares). 9

10 What are your views on the adverse publicity about the Fund? We are obviously concerned when we read inappropriate or ill-informed comments in the press, particularly from persons who are neither regulated financial advisers nor experts in the area of life settlements. Many Shareholders may not be aware of these but they are seen by some, and in particular they are noticed by relevant third parties, such as those considering buying policies from the Fund. We recognise that such comments cause unnecessary alarm and anxiety to some of our Shareholders. Such behaviour is also regrettable as it risks, amongst other things, having an adverse effect on the sale prices of policies and/or the Secondary Sales Process, and can therefore be detrimental to the interests of both the Fund and Shareholders more generally. The Manager provides a substantial amount of information regarding the Fund and will continue to encourage constructive dialogue with Shareholders and their advisers. Shareholders are strongly encouraged to make their own investment decisions based solely on information provided by the Fund and/or any advice provided by their independent financial advisers. How can I keep up to date with the Fund? The Manager provides Shareholders and their advisers with information regarding the Fund at and will continue to do so. This includes monthly Fact Sheets, quarterly Portfolio Statistics (which includes the latest update on performance and maturity projections), Maturity Schedules and other Fund updates. 10